marco mazzucchelli, ceo sanpaolo wealth management k iev - may 27th, 2004
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Investments of pension funds: challenges for the Regulation and Supervision - Lessons learned from the Italian experience -. Marco Mazzucchelli, CEO Sanpaolo Wealth Management K iev - May 27th, 2004. OPENING REMARKS ITALIAN PENSION SYSTEM REGULATORY FRAMEWORK AND KEY FINDINGS CONCLUSIONS - PowerPoint PPT PresentationTRANSCRIPT
Investments of pension funds: challenges for the Regulation and Supervision
- Lessons learned from the Italian experience -
Marco Mazzucchelli,
CEO Sanpaolo Wealth Management
Kiev - May 27th, 2004
2
AGENDA
1. OPENING REMARKS
2. ITALIAN PENSION SYSTEM REGULATORY FRAMEWORK AND KEY FINDINGS
3. CONCLUSIONS
ANNEX:
SANPAOLO WEALTH MANAGEMENT – HIGHLIGHTS
3
1. OPENING REMARKS
A. The development of private pension systems (pillars II and III) in Eastern Europe could leverage on previous international experiences, mainly in terms of:
- regulatory framework results
- asset managers professional know-how
B. Regulators should enable domestic players to complement their competence/offering through:
The acquisition of products/capabilities managed by foreign specialized players, and/or
The outsourcing of specific asset classes delegated to international portfolio managers
C. The access to international markets/asset classes should be coupled with a solid system of checks and balances
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2. ITALIAN EXPERIENCE: SUMMARY
A. Pension system regulatory framework still based on pillar I and evolving over time towards:
- retirement age increase and reduction of replacement ratio
- increased allocations on pillar II and III to cover pension gap (1)
Effectiveness of supervision activities
B. Complementary pension system still small but growing
C. Pension funds adherents experienced good performance and stability despite major financial shocks, thanks to:
- Leverage of competence and know-how from one of the largest European asset management industry
- Wide range of investment products/markets available to portfolio managers in a well regulated environment
1) Calculated as the first pension payment vs. last salary received
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2. ITALIAN PENSION SYSTEM REGULATION
1) Calculated as the first pension payment vs. last salary received2) One off inflation linked retirement allowances Pension gap based on hypothesis of a 45 year old man, started working 25 years old, retires after 35 years of contributionsSource: CERP; Eurisko multifinanziaria; Bankit General report on economic trend in Italy
Pre-pension Reform (90s)
Post-pension Reform
(Amato+Dini)
Pension Gap
PENSIONS GAP
RE
PLA
CE
ME
NT
RA
TIO
(1)
0
20
40
60
80
10097,1 62,7
34,4
FOCUS ON
REDUCING
PUBLIC DEBT
ACTION TO
COVER
PENSION GAP
PILLAR I
PILLAR II AND III
Amato Reform ‘92:Increased retirement age and contribution period
Law ‘93First regulation of complementary pension schemes (pillar II)
Dini Reform ‘95In pillar I, introduction of defined
contribution system and gradual phase out from pay-as-you-go (PAYG) system
Prodi Reform ‘97PAYG phase out acceleration
Law ‘00Introduction of Private Pension schemes
(III pillar)
Maroni Law Proposal ‘04Enforcement of the complementary
pension system (Mandatory TFR(2) conversion to pension funds)
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2. REGULATORY ENVIRONMENT
Dedicated Supervision Authority Separate role for close-ended pension fund Sponsor and Portfolio Managers Custodian Bank with mandatory monitoring functions on Portfolio Manager activities Portfolio Managers can access diversified markets/products
Market /Products
Pension FundSponsor
PortfolioManagers
Custodian Bank
Supervision Authority- COVIP
Adherents/ Members
Source: ABI, Covip website, Legislative Decree n.124/1993Source: ABI, Covip website, Legislative Decree n.124/1993
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2. PENSION FUND SYSTEM EVOLUTION (1)
0
500
1,000
1,500
2,000
2000 2003
OPEN-ENDEDPENSION FUNDS - AUM (MM Euro)
+215%
CLOSE-ENDEDPENSION FUNDS - AUM (MM Euro)
+315%
0
1,000
2,000
3,000
4,000
5,000
2000 2003
+282%
N.° membersN.° members 222.032 364.604
550
1.7314.543
1.190
877.523 1.042.381
Despite being a small part of the Italian retail financial assets (4%), the complementary pension fund market is experiencing a steady increase
(1) Funds established after 1993Note: Percentage calculated as total pension funds AUM on AUM net of duplications of Asset Management industrySource: Covip, Annual Report 2003
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Open-ended pension funds performance in 2003 5.7%
Close-ended pension funds performance in 2003 5%
Gross TFR Revaluation 3.2%
2. PERFORMANCE
TFR REVALUATION AND BACKTESTED
PENSION FUNDS PERFORMANCE
1) Net of all expenses and taxes2) Semi logarithmic scale; base 100 as May 31st, 1982Source: Covip, Annual Report 2003
1) Net of all expenses and taxes2) Semi logarithmic scale; base 100 as May 31st, 1982Source: Covip, Annual Report 2003
NOMINAL
PERFORMANCE (1)
INFLATION
ADJUSTED
PERFORMANCE (1) (2)
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
400
350
300
250
200
150
100
80
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2. A ROBUST SYSTEM
EXAMPLE: PARMALAT
95% of pension funds mandates have a minimum “BBB-” rating constraint on investments: Parmalat bonds were virtually absent
SYSTEM STABILITY AND RISK CONTROL
Complementary pension funds market were not affected by recent financial shocks, both domestic and international
REGULATORY GUIDELINES Risk diversification Attention to conflict of interests: strategic and tactical asset allocations managed by different
subjects (for close-ended funds) Dedicated Authority (Covip) to monitor pension fund investments
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2. THE ITALIAN ASSET MANAGEMENT MARKET (1)
Mutual Funds
Life insurance Technical reserves
Discretionary Portfolio Management
1.231
(1) Gross of duplicationSource: Eurisko – Prometeia – 2003 and Assogestioni
BN €
482
CAGR ’97 vs ‘03
+155%
+218%
+117%
+166%
Pension fund managers can leverage on know how developed in one of the largest European asset management industry
539
271
422
0
200
400
600
800
1.000
1.200
1.400
1997 2003
MUTUAL FUNDS MARKET
N.° Mutual Funds
N.° A.M. companies
626 1.012
53 55
203
85194
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2. ACCESS TO FOREIGN MARKETS AND INVESTMENT OPTIONS/LIMITS
ACCESS TO FOREINGN MARKETS
<50% of securities issued by OECD countries but not traded in regulated markets (1)
<5% of securities issued by non-OECD and traded in regulated markets
Securities issued by non-OECD countries not traded in regulated markets are forbidden
Individual issuer < 15% of pension fund assets
INVESTMENT LIMITS IN RELATED PARTIES
<20% of pension fund assets in a single related company Total allocation for related companies <30% of pension fund assets
OTHER QUANTITATIVE LIMITS
<20% of fund assets
<20% of fund assets <25% of investment fund value
CURRENCY MATCHING
The fund is obliged to invest minimum 1/3 of its assets in Euro
Liquidity
Shares of private equity and closed investment funds
Treasury Ministery, Decree November 21st, 1996, n.703 art. 4 and 51) Within such limits, the fund investments in equity cannot exceed 10% of the fund total assets and the total amount of debt and equity securities issued by non- OECD countries cannot exceed 20% of the fund total assets.
Treasury Ministery, Decree November 21st, 1996, n.703 art. 4 and 51) Within such limits, the fund investments in equity cannot exceed 10% of the fund total assets and the total amount of debt and equity securities issued by non- OECD countries cannot exceed 20% of the fund total assets.
CONCENTRATION LIMITS
<5% in any single unlisted company<10% in any single listed company
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2. EFFECTS OF PORTFOLIO LIBERALIZATION
PERFORMANCE: MSCI ITALY vs MSCI WORLD
40
60
80
100
120
140
160
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Liberalization of financial markets did not produce negative effects on domestic financial system
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3. CONCLUSIONS
- Open access to international
markets and multiple asset classes
Professional Asset
Managers key principles
Positive findings of Italian
regulatory system
- Portfolio diversification and
dedicated expertise
- Investments limits and sound
supervisory system
- Split of competencies and
responsibilities
- Rigorous investment process and
risk management approach
- Transparent and professional
code of conduct
Coherence between regulatory/supervisory system and professional asset
management principles has positive effects both for pension fund adherents
and domestic financial system
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ANNEX - SANPAOLO WEALTH MANAGEMENT- HIGHLIGHTS
Products/Services:
Institutional mandates
Strategic/tactical asset allocation advisory
Selection/monitoring of third-party institutional managers
Products/Services:
Umbrella fund (40 sub funds)
Management of third- party funds and dedicated SICAVs
Management of life insurance products
Advisory services on capital protection techniques
Full service provider
(1) JV 50% SPWM & 50% Santander Group(2) JV 50% SP Vita & 50% Reale Mutua
(1)
(2)
TOTAL AUM March ‘04:
131 BN €
The leading Italian Group in the Wealth Management industry (Asset Management and Insurance)
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CONTACTS
Filippo Reda +39 02 30347 2253E-mail [email protected]
Sanpaolo Wealth ManagementHead of Sales
Riccardo Pola +56 2 381 3434E-mail [email protected]
Sanpaolo IMIDeputy Manager - Chile